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Banking Inefficiency in Central and Eastern European countries under a Quadratic Loss Function

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Abstract

This paper employs a specification of a quadratic loss function based on forward looking rational expectations to model the underlying dynamics of efficiency scores in the banking industry of eleven Central and Eastern European countries over the period 1998-2005. Results show that there is considerable variation in the adjustment speed to the long run equilibrium across banking systems and over time, while it also appears that the recent accession to the EU has not led to the expected increase in the speed of adjustment to the long run equilibrium. Moreover, banks’ ownership structure appears to assert an influence on the speed at which credit institutions correct their past-period inefficiency.

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Bibliographic Info

Paper provided by Department of Economics, University of Macedonia in its series Discussion Paper Series with number 2008_11.

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Date of creation: Sep 2008
Date of revision: Sep 2008
Handle: RePEc:mcd:mcddps:2008_11

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Web page: http://www.uom.gr/index.php?tmima=3

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Keywords: Speed of adjustment; long run equilibrium; rational expectations; banking inefficiency.;

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  1. Keith Cuthbertson & Mark P. Taylor, 1990. "Money demand, expectations, and the forward-looking model," Proceedings, Federal Reserve Bank of Cleveland, pages 289-324.
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  15. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
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Cited by:
  1. Olson, Dennis & Zoubi, Taisier A., 2011. "Efficiency and bank profitability in MENA countries," Emerging Markets Review, Elsevier, vol. 12(2), pages 94-110, June.
  2. Hryckiewicz, Aneta & Kowalewski, Oskar, 2010. "Economic determinates, financial crisis and entry modes of foreign banks into emerging markets," Emerging Markets Review, Elsevier, vol. 11(3), pages 205-228, September.

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